Risk Managers' Forum

When clients go global

International exposures present risk management challenge

By Jaye E. Kasper

While on a recent vacation to Sicily, my Iowa-born family and I were thrilled to hear the familiar chugging of an old John Deere tractor. It reminded me of the increasing amount of international business being conducted and the property and liability exposures faced by companies operating in the international market.

Although there is not sufficient space here to discuss international insurance exposures at length, we can cover in general terms several of the issues involving international insurance that are common to almost every industry. Hopefully, you will be able to adapt some of the following points to your specific risks, and do more in-depth study of your own.

Property. For the company that operates entirely within its coverage territory, this is not an issue. When the company opens an office “on foreign soil,” however, you need to be aware that typical “property away from premises” coverage extensions do not apply. This is especially important when the office or plant will be operating on a long-term basis, and where property laws may differ vastly from those in the United States (and territories). Construction materials and methods vary widely (as do fire protection services), so a worldwide insurance company is an option when many locations are planned; otherwise, contacting a local agent is generally the best option.

Liability—specifically products liability. Perhaps it is a cultural difference, but statistically it is shown that premises liability claims generally do not arise in foreign countries. When they do occur, the payment for them is generally restricted to medical bills only. The major area of concern for U.S.-based operations is product liability and, more specifically, product recall.

The standard ISO provisions indicate that a suit must be brought in the United States (and various other areas) in order for coverage to be triggered. When the event happens in a relatively modern area, this is not an issue as there is access to phone, fax, and Internet service. In more rural areas, however, the suit is most likely to be brought in a local court. In this case, there are more expenses (travel, legal representation in multiple countries, communications bills, translation services, etc.) as well as language and other cultural differences which could either escalate or ameliorate the situation.

Product recall is particularly difficult to manage effectively; you can imagine trying to recall a farm tractor that was manufactured in Iowa, freighted to the West Coast, shipped to a dealership in China, sold to a farmer from Xinjiang and then resold to a traveling dealer going to Kazakhstan! Replacing a defective part means that the part and service technician would have to follow the same path to find the end user and make the repair.

And don’t forget the flipside of this problem, when defective materials are imported into the United States and become part of a permanent structure (toxic drywall is a recent issue) or are used in the manufacture of American goods (lead in the paint used on toys, for instance). You will need to know details from the supply chain in either direction in order to pinpoint potential areas of concern for your specific risk.

Auto. For the most part, U.S. auto coverage will not travel with you. Although renting a vehicle is simple when you have a U.S. license, the safest action is to purchase insurance offered at the rental office, as it is more likely to meet whatever local governmental requirements exist. Sometimes it is more expedient just to hire a car with a local driver and verify that the insured’s own policy would provide secondary coverage.

Cargo/transit. With an international exposure, you need to be aware that goods may travel first by truck, then by barge, then by rail, then by ocean liner or air freight, then by rail again, and eventually by truck or another kind of vehicle to the point of destination. Intermodal transportation is very common in European countries, and some U.S. companies provide the coverage for it.

If you have standard cargo or ocean marine policies in force, you will need to review the coverage carefully to make sure there are no exclusions that might apply at any point during the entire transportation process for your specific risk. A careful review is also required for bills of lading; you need to make certain that it is perfectly clear who “owns” the goods at various points in the shipping, and who retains salvage rights (if any). Food products are particularly susceptible to damage during shipment, and contracts should be reviewed frequently.

Workers compensation. The entire concept of “employee” vs. “independent contractor” is a new one to most of the world, and different meanings and require­ments exist. Legal opinions should be sought at every stage of the employment process when there is an international exposure, as the usual work comp forms and coverage generally do not apply outside the United States. Pay special attention to “repatriation” (bringing a U.S. employee home in the event of injury, illness, or death) and to whether or not the policy excludes communicable disease and/or “dread” (“endemic”) diseases. Some work comp policies will exclude coverage if the employee has not been inoculated!

Specialty coverages. In addition to the standard exposures normally reviewed, international risks present several more that are peculiar to their operations. War—domestic, civil, or multi-national—is a threat. If the insured operates in an area that is currently at war, or may become active in a war, you need to ask about evacuation plans and the insured’s procedures in such a situation. How would each country of operation react in the event of a terrorist strike? How would war in another country affect the supply chain to the insured in the United States, or the value of the insured’s exports?

Along with war and civil unrest comes the danger of having an employee kidnapped and held for ransom, or even killed. Special coverage should be purchased for this exposure, either on a blanket basis or for scheduled individuals. Life insurance needs to be reviewed to see if there is an exclusion for death resulting from terrorist action. Check to see what repatriation coverage there is; sometimes the limit is so low it will not cover even a fraction of the expense in recovering a victim and returning that person to the Unites States.

Weather patterns in other countries differ in many ways from those in the United States. Tornadoes, for instance, do not occur with any frequency in Europe, but landslides and earthquakes are much more prevalent. Because Asia suffers from monsoons and tsunamis, flooding is of particular concern there. Africa cycles through drought more often than any other continent; anyone with operations there will need to have contingent water supply planning in place. DIC policies may be required to “plug the holes,” particularly if the insured has multiple locations.

Umbrella/excess. Because every umbrella policy is different, ask a lot of questions! Will it extend over a German auto liability policy? What about workers comp for Greek employees? Are there any “dread disease” exclusions? Is it a worldwide coverage territory? What about expenses for legal representation if a suit is brought overseas and not in the CGL coverage territory? Is payment to the insured, or to the claimant? Is payment in U.S. currency, or the currency of the country? What standard is used for the conversion? Does the umbrella provide for additional expenses if there are delays in legal processing due to language, distance, or other cultural differences?

As you can see, a wide variety of exposures is associated with international accounts. While insurance cannot provide coverage for every contingency, a careful review of the insured’s entire process and involvement in the global economy should help identify areas of concern which can then be addressed by application of any of the traditional methods—risk transfer, loss control, or retention—on a case-by-case basis.

The author
Jaye E. Kasper is a commercial underwriter with the United Fire Group. She has spent more than 20 years in commercial insurance, on both the agency and company sides, and holds the following designations: CPCU, CPD, CRM, CIC, CISR, ALCM, ARM, ARM-P and CRIS. Jaye is a three-time winner of her state CSR of the Year award, currently serves as president of her local CPCU Society, and is a Certified Risk Manager (CRM). For more information on the CRM program, go to www.TheNationalAlliance.com.